You may remember how Mick Mulvaney, director of the Office of Management and Budget (OMB) and acting director of the Consumer Financial Protection Bureau (CFPB), made headlines earlier this year when he openly recommended paying for access to Congress. Reflecting on his tenure as a Republican representative from South Carolina, he told an American Bankers Association audience:
“We had a hierarchy in my office in Congress. If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you.”
— Mick Mulvaney
In short, he was telling bankers how to get access and preferential treatment via campaign contributions.
Access for Sale
Moments like these shine a spotlight on the relationship between corporate lobbyists and lawmakers that is both cozy and conflictual. This phenomenon goes by a variety of names including crony capitalism, pay-to-play politics, and corporate welfare.
This system encourages businesses to build relationships with politicians and regulators. It’s natural that businesses want to advocate for their own interests. The problem is that lawmakers and lobbyists work out sweetheart deals and insider advantages for those willing to cough up campaign cash, gifts, jobs, and other incentives. At its worst, cronyism is a form of legalized bribery and a corruption of how government should work.
Regardless of what you call it, this legislative and regulatory favoritism reduces competition, stifles innovation, and undermines our representative democracy. And it isn’t a conservative or liberal issue. People across the political spectrum are concerned about the unhealthy dependency between large corporations, wealthy funders, secret money groups, and our elected representatives.
Robert Merry, editor of The American Conservative, introduced a 2017 panel of speakers on crony capitalism by describing the United States’ history of fighting this conflict of interest. And conservative billionaire Charles Koch has voiced his disdain for cronyism, calling on corporate leaders to reject protectionist steel and aluminum tariffs.
“One might assume that… I would applaud such import tariffs because they would be to our immediate and financial benefit. But corporate leaders must reject this type of short-term thinking, and we have. If we are to have a system in which businesses can succeed long term, policies must benefit everyone, not just the few… Our entire system is rife with cronyism, resulting in regulations and subsidies that are destroying competition, opportunity, and innovation.”
— Charles Koch
The ROI of Lobbying, Contributions, and Gifts
The return on investment (ROI) on lobbying is so great, that it often makes more sense for large corporations to invest in lobbying for special favors (aka rent-seeking) than it does for them to invest in better products and services.And for lawmakers, it’s easier to build campaign coffers with a small number of large donations from the wealthiest interests.
Favoritism may help a handful of large, influential corporations in the short term, but over the long term, this codependency damages the business climate for the other companies who are left to compete under unfair rules. In this way, cronyism leads to market inefficiencies that inhibit competition and innovation, thereby leading to stagnation.
It’s logical for a company to maximize value for its shareholders, and lobbying (along with political contributions) has a great ROI. So if we want policies and regulations that encourage competition and align with our nation’s long-term economic interests, we must ensure that our system incentivizes better behavior from all involved.
Moving Beyond Cronyism
There is a growing recognition that cronyism — and government dysfunction more broadly — harms business interests. Starting in 2011, Harvard launched a project to understand the disappointing performance of the American economy, its causes, and the steps for business and government to fix it. Their 2016 report on the state of U.S. competitiveness concluded the following:
“[D]ysfunction in America’s political system is now the most important single problem facing America… Many in business have been wary of politics, or made our political dysfunction worse through self-interested efforts to influence government. When business becomes a special interest, it undermines competitiveness and the environment for all business, not to mention public support for business.”
— Harvard Business School’s Michael Porter, Jan Rivkin, Mihir Desai, with Manjari Raman in “Problems Unsolved and a Nation Divided: The State of U.S. Competitiveness 2016”
While the massive corporations getting the highest ROI on their lobbying dollars are unlikely to change their ways willingly, many others are tired of squandering time and money on political games. This is just one example of why business leaders need to come together to support common-sense improvements to how our government functions.
Until we address these conflicts of interest that result in favoritism and market distortions, our economy cannot reward excellence, risk-taking, and innovation like it should.
Business for America is catalyzing the business community to help strengthen our representative democracy.
Ready to be part of the solution? Get in touch and find out how you can help.